British investigators have dropped a probe of a hedge fund accused of violating its prospectus by investing in corporate bonds that some investors alleged were worthless.

The U.K. Serious Fraud Office said there was insufficient evidence against Dynamic Decisions Capital Management, following an eight-month investigation. The British probe began after the hedge fund was accused of “gross mismanagement and malfeasance” in the Cayman Islands, where the firm’s hedge funds were domiciled.

Dynamic Decisions founder Alberto Micalizzi, an Italian finance professor, said last March that funds had suffered “substantial” losses in 2008, with its assets plunging from US$550 million to just US$20 million. The firm suspended redemptions early last year. The funds were put into liquidation last year.

Dynamic Decisions and Micalizzi said the end of the probe shows that the funds’ actions were a “reasonable response to unprecedented conditions.”

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